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Explain how technology can help an organisation to gain a competitive advantage (Essay Sample)
how technology can help an organization to gain a competitive advantagesource..
Using Porter’s value chain framework, explain how technology can help an organisation to gain a competitive advantage
In an attempt to increase value processes, most companies try apply Porters model of Chain Value. Porter asserts that “Competitive advantage cannot be understood by looking at a firm as a whole. It stems from the many discrete activities a firm performs in designing, producing, marketing, delivering and supporting its product. Each of these activities can contribute to a firm’s relative cost position and create a basis for differentiation” (Porter, 1985 p., 33). He further argues the functionality of any company does not only entail the conditions of the industry but also the amount of value created as compared to its competitors. In this case, companies try to attain a competitive advantage by creating additional values and sustaining it in future.
It should be noted that any company should understand measures it can take so that its products can serve its consumers better as compared to other substitutes. As a result, the technology of production, sales and distribution plays a major role in every company. Pearson (1999) argues that companies need to focus on a competitive strategy from the top-level in order gain a competitive advantage. Indeed, companies must embrace every business aspect so that every employee and manager knows the objectives of the business strategy. By so doing, every action and decision will be consistent with the business strategy which companies would put into practice. The Value Chain is a logical way that is used by firms to look into business activities with the aim of mobilizing the different strategic impacts.
Companies use Value Chain so as to understand the behavior of the market so that they can come up with a more effective management. Value activities can be defined as the technologically and physically distinct activities that are performed by companies so as to attain their objectives.
In the current competitive and dynamic business environment, profitability, growth and survival are the essence objectives of all companies. In the current business environment, Porter’s Five Forces, Balanced Scorecard and Value Chain framework have been adopted as management tools for most organizations. The three frameworks help managers in making right decisions and building and sustaining competitive advantages in organizational levels. The Porter’s five forces is a powerful tool as it enables managers to analyze the situation in their industry in an easy to understand and a structured way. Companies use the five forces framework to get an insight of the forces at the work within the business environment. Within the frameworks of Porter, a competitive strong force is regarded as a threat because it depresses profits.
Organizations see a weak a weak competitive force as a good opportunity to get high profits. “It is crucial managers to recognize opportunities and threats when they arise and formulate appropriate strategy to alter the strength of one or more of the five forces to its advantage” (Porter, 1979, p., 43). The Value Chain is an important tool for organizations because it shows the different contributions from various functions in a company in the process of value-adding. Notably, it integrates both the different functions within the company and the process steps for customers’ delivery that contributes for the delivery at various stages.
It is alleged that “Porter's Value Chain is an effective tool to understand, at a high level, how each of internal business activities adds value to organizations by dividing a business into strategically relevant activities” ( HYPERLINK "http://en.wikipedia.org/wiki/Philip_Kotler" \o "Philip Kotler" Kotler , 1997, p.,34). Managers use the value chain in identifying the sources of competitive advantage, therefore, performing activities in a cost effective way than their rivals. Companies use value chain in analyzing the costs and in identifying the weaknesses and straights of a company. The chain value is more useful as opposed to the traditional accounting protocols that some companies are still using. The Value Chain gives business organizations opportunities so that they can reach better decisions in outsourcing. Companies can obtain a competitive advantage by coordinating and optimizing linkage activities. Companies must understand linkages between activities so that they can make decisions which can result into a differentiation advantage or a cost advantage.
On the other hand, the value chain helps business organizations in analyzing the internal workings or rival organizations so that they can improve the performance of the organization. “By understanding organization's advantages compared to other competitors, value chain can aid organizations designing products and systems that will maintain advantage within the competitive arena” Porter, 2008, p., 43). Firms use this framework in identifying key rivals in the market and in analyzing most competitors in order to take appropriate action. Although the tool chain plays an important role in identifying and the source for a competitive advantage by undertaking a chain of activities in a cost-effective manner, it also has some weaknesses. Such weaknesses may include difficulties in making calculations for small corporations and ignoring important information that is necessary in maximizing the value.
Value Chain is a powerful management tool that helps in making a detailed analysis of a firm’s cost position in order to attain a competitive advantage. Nonetheless, this does not mean that coming up with a value chain is an easy process. In this case, complex calculations between a series of value adding activities can cause a major challenge when applying this framework. As a result, therefore, companies need to confront several thorny problems such as isolating cost drivers, calculating values for intermediate products, computing customer and supply margins, and ability to identify linkages across activities. Another potential weakness of the value chain is that it ignores informational powers in maximizing organizational value. “With the emergence of information technology, recognition that IT can add value for the customer while simultaneously reducing the costs of producing an end product or service has revolutionized the role of technology and information in organizations (Porter & Millar, 1985, p., 43).
The application of physical model of chain value by most organizations is relatively slow and ineffective in such a rapid environmental change. Arguable, most organizations use informational components of any processes as opposed to the physical counterparts in creating added value for their consumers. The main reason for this is that information is such a powerful tool that provides organizational opportunities in establishing a value chain. A virtual value chain adds value to physical goods and also in utilizing and analyzing information. As a result, therefore, the traditional value chain can also take information into consideration when meeting the new economic requirements. Business organizations use the Value Chain to analyze business processes where there are divergent transaction, outputs and inputs. The value chain has a inherent logic flow and its used by business organizations to evaluate how they control costs and generate revenues while enhancing the satisfaction of customers. After business organizations have established value chain, they can then use business tools of analysis such as Marketing Mix, SWOT analysis which can be applied to each functional group and each stage group to contribute to the value. Implementing the value chain successfully strengthens the competitive advantage of a company.
It should also be noted the value chain enable organizations to perform similar activities or in a different manner or different activities than their competitors. Information about cost allocation bases, cost distribution and relationship on degree of costs tracing and value chain costs is essential in managing activities of value chain successfully. In order for any company to succeed in the current competitive business world, it needs to undertake an analysis on the value chain. It should also select optimal mix of activities in the value chain. Business organizations should not consider their own value chain in isolation. This is because the value created activities are linked to one another within the organization. The linkages exist if the costs or performance of one activity affects that of another. Reducing the cost of a single activity may lead to increases cost of other activities. As a result, companies should not reduce the costs of activities independently. “To achieve competitive advantage, organizations should make cost analysis of the value chain and coordinate and optimize linked activities together instead of viewing them as separate and independent cost centers” (Rainer, 2007 p.,125).
It should be noted that organizations forms part of the system of value addition that involves distribution value chains, supply chains and customers value chains. By co-operating with distributers and suppliers and managing the value system, the whole process right from raw materials to end products is optimized. Consequently, it creates a higher value at a lower cost. By so doing, business organizations are able to achieve competitive advantage. “All in all, with the recognition of the value chain's claimed benefits and potential weakness stated above as well as some implementation issues, if the organizations can properly adopt the value chain theory, it may assist organizations to explore...
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